Drax Plans to Spend $1.1 Billion on Biomass to Cut Emissions

Feb. 21 (Bloomberg) -- Drax Group Plc plans to invest as
much as 700 million pounds ($1.1 billion) to burn more biomass
at its coal-fired power plant, the U.K.’s largest, and meet
emissions standards, Chief Executive Dorothy Thompson said.

The company is committed to spend 50 million pounds in 2012
to increase its ability to co-fire biomass, the executive said
on a conference call today. An additional 450 million pounds is
required to modify the plant, build storage facilities and
develop biomass supply chains, she said.

“Expansion will need substantial investment in ports and
rail facilities,” she said. “This is not be something that
happens overnight.”

Drax said last year it plans to raise the amount of biomass
it uses for electricity by 2013. Biomass-fueled generation,
which uses organic feedstock such as wood chips or straw, gets
government support in the U.K. through the award of tradable
Renewable Obligation Certificates. The Department for Energy and
Climate Change has proposed doubling ROCs to enhanced biomass
co-firing plants.

The proposals, which are under review through March and
will take effect in April 2013, award one ROC for every
megawatt-hour produced, double the current rate. Drax will also
invest as much as 200 million pounds to comply with European
Union emissions standards, it said today in an earnings
statement.

‘More Clarity’

“Drax has provided more clarity on its biomass trials and
capital expenditures,” Liberum Capital analyst Dominic Nash
said in a note to investors today. “This is significant in our
view as it indicates that co-firing above 50 percent is a
possibility. This could be an important value driver later in
the decade.”

Profit before interest, tax and amortization retreated to
334 million pounds from 392 million pounds a year earlier. This
beat the 325.7 million-pound average estimate of 14 analysts
surveyed by Bloomberg. Sales increased 11 percent to 1.8 billion
pounds.

Output from the Selby-based power producer was flat at 26.4
terawatt-hours and the plant was available more than 88 percent
of the time, Drax said today. Power generation from coal-fed
plants almost tripled since the end of August, according to data
compiled by Bloomberg.